BFH has upheld the constitutionality of minimum taxation rules but ordered the tax authorities to reconsider equitable relief after loss carryforward restrictions resulted in a permanent tax burden for a company in liquidation. The ruling in case I R 20/25 clarifies that while minimum taxation remains valid, exceptional circumstances may warrant relief under § 163 of the Fiscal Code (AO).
Germany’s Federal Fiscal Court (BFH) has confirmed the constitutionality of statutory minimum taxation rules while finding that tax authorities must reconsider a request for equitable relief where restrictions on loss carryforwards create a permanent tax burden that was not intended by the legislature.
The First Senate issued its judgment on 15 April 2026, in case I R 20/25 (formerly I R 59/12). The court partially overturned the lower court’s decision concerning equitable relief under § 163 of the Fiscal Code (AO) and ordered the tax office to reassess the company’s application.
Dispute over loss utilisation
The case concerned B-GmbH, whose insolvency administrator challenged its corporate income tax assessments for the liquidation period from 28 July 2005, to 31 July 2008.
B-GmbH provided services related to urban development under a cooperation agreement with D-GmbH. Following disputes between the companies, D-GmbH agreed to a settlement covering B-GmbH’s insolvency claims and estate liabilities.
A key issue involved a EUR 44,187,069 claim against D-GmbH. B-GmbH had fully written off the claim in its 2004 balance sheet because of ongoing litigation. This contributed to a net loss of EUR 46,618,630.
After a court confirmed the validity of the claim in 2006, B-GmbH was required to recognise a write-up (Wertaufholung). This resulted in a net profit of EUR 74,691,354 in its 2006 balance sheet.
Minimum taxation applied
For the liquidation period, the tax office assessed B-GmbH’s corporate income tax based on total income of EUR 78,162,546.
B-GmbH had accumulated losses of EUR 72,353,821. However, under the minimum taxation rules in § 8 Abs. 1 Satz 1 KStG in conjunction with § 10d Abs. 2 Satz 1 EStG, only EUR 47,297,528 of those losses could be deducted.
The restriction also applied to B-GmbH’s trade tax loss carryforwards. In addition, financing expenses were added back under the trade tax rules in § 8 Nr. 1 GewStG.
The resulting tax assessments were paid by D-GmbH. The plaintiff subsequently filed objections and brought proceedings before the tax courts.
BFH upholds minimum taxation rules
The BFH found that the statutory provisions governing minimum taxation and the restrictions on loss utilisation were generally lawful and constitutional.
The court therefore did not overturn the minimum taxation regime itself. Instead, it focused on whether equitable relief should have been considered because of the particular circumstances of the case.
According to the BFH, the accounting write-up produced taxable income that could not be fully offset by the losses accumulated by B-GmbH. Because the company was in liquidation, the unused losses could not subsequently be used to reduce future taxable income.
This created a definitive tax burden arising from the interaction between the accounting treatment of the claim, the minimum taxation rules and the company’s liquidation.
Tax office must reconsider equitable relief
The BFH held that the tax authorities and lower courts had made procedural errors when rejecting the plaintiff’s alternative application for equitable relief.
The court therefore set aside the relevant decisions concerning the equitable relief application and required the tax office to reconsider the request.
The ruling does not establish a general exemption from minimum taxation. Rather, it indicates that equitable relief under § 163 of the Fiscal Code (AO) may need to be examined where the application of otherwise valid minimum taxation rules produces a permanent tax disadvantage that goes beyond the outcome intended by the legislature.
Implications of the ruling
The decision distinguishes between the validity of minimum taxation and the possibility of correcting exceptional outcomes through equitable measures.
The BFH confirmed that statutory limits on the use of loss carryforwards remain applicable. However, where technical accounting effects and the taxpayer’s specific circumstances result in losses becoming permanently unusable, the tax authorities may have to assess whether equitable relief is warranted.
The case will therefore return to the tax authorities for a new assessment of the plaintiff’s request for equitable relief. The BFH’s decision leaves the minimum taxation rules in place while requiring the specific tax consequences arising from the company’s liquidation to be reconsidered.
